How endowments and foundations can advance their mission through investment 

In recent years E&Fs have increasingly moved to align their investments with the organization’s mission. They’re aiming to achieve not only financial returns but also targeted social or environmental outcomes.

One quarter of the E&F respondents to our 2023 E&F Survey said they use impact investing to align their portfolio with their mission. This trend, which has developed over time, gained further traction in the UK in 2023 when Charity Commission guidance encouraged trustees to use the investment portfolio as a key lever in achieving their purpose.

Yet as more E&Fs move in this direction – with benefits for reputation and fund raising – they may share the ambition of larger forerunners but often lack necessary scale and resources. We believe, though, that they can learn from the experience of the pioneering E&Fs. Doing so can help them to chart their own course and determine what resources they will need.

Pioneers in the UK and US have taken several different paths. Some have aligned investments with mission by focusing on investing for impact across themes – such as climate, health etc. – that are core to their mission. Other impact-led approaches concentrate on place-based investments in the E&F’s backyard, such as building affordable houses. Other E&Fs may make investments that catalyse transition to a more sustainable economic, social and environmental future.

It seems that a wider set of E&Fs has taken steps toward values alignment by excluding companies that don’t reflect their values, such as those linked to tobacco, controversial weapons, fossil fuels etc.

Taking an impact investing approach has become easier due to the proliferation of dedicated impact strategies, although many are in private markets meaning E&Fs must account for an illiquidity trade-off. Illustrating this growth, the UK impact investing market grew from £19.3 billion in 2021 to £76.8 billion in assets by the end of 2023, according to the Impact Investing Institute.

Ultimately, aligning investment strategies with impact investments requires a structured, collaborative approach, ideally twinned with an understanding of investment persona (see choosing your sustainable investment persona(s)). This ensures all stakeholders are engaged, governance is clear, and the right investment horizon is adopted. As small to medium E&Fs approach this topic, their path to impact may require specialist expertise and resources to realise their ambitions.

As investors explore how to align their mission and investments, choosing your sustainable investment persona(s) can be a useful exercise. The personas enable asset owners to consider which profiles they identify with, helping owners to understand the drivers, ambitions and practical actions that are right for them.  You may find that one suits you perfectly or that you identify with elements of more than one. The graphic below illustrates six personas that Mercer has identified, which we describe as follows:

• The Explorer represents owners starting to develop sustainable investment objectives, or those seeking to review a long-standing approach.
• The Long-Term Return Seeker represents investors taking a long-term approach when setting their investment strategy, with a consistent time horizon that they apply to solving sustainability challenges.
• The Regulatory Responder represents those responding to (typically increased) regulatory expectations governing sustainable investment.
• The Stakeholder Synchroniser represents investors seeking to align their investment strategy with the expectations or values of their wider stakeholders.
• The Sustainability Leader represents investors who want to take the lead in sustainable investment and support broader market development and innovation.
• The Impact Allocator describes those investors who wish to focus on both financial returns and intentional social or environmental impact.

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